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Why Do Similar Countries Trade with Each Other for the Same Good?

Author

Listed:
  • Le Duc Niem

    (Department of Economics, Tay Nguyen University, Vietnam)

Abstract

In this paper, we construct a simple model to show why similar countries can trade with each other for the same good when product quality can be selected by firms. Specifically, we devise a model that shows when trade expands a market, firms will build higher quality into their goods that benefits the whole region. We find that trade does not increase the variety of goods and makes goods more costly due to their higher quality. Therefore, we conclude quality improvement is the main mechanism that helps countries gain from trade in quality differentiated goods.

Suggested Citation

  • Le Duc Niem, 2014. "Why Do Similar Countries Trade with Each Other for the Same Good?," Working Papers 172, Development and Policies Research Center (DEPOCEN), Vietnam.
    • Handle: RePEc:dpc:wpaper:0414
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    File URL: https://depocenwp.org/modules/download/index.php?id=172
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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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